What is the test of good faith and fair-dealing in the context of an insurance policy where the insurer is required to hire an attorney to defend the insured against the insured?

California, United States of America

The following excerpt is from Houston Gen Ins Co v. Superior Court, 108 Cal.App.3d 958, 166 Cal.Rptr. 904 (Cal. App. 1980):

This general rule of evidence is particularly compelling when applied to the relationship that springs from an insurance policy with its implied-in-law covenant of good faith and fair-dealing. (Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 574, 108 Cal.Rptr. 480, 510 P.2d 1032.) Typically the insurer is bound under the policy to employ an attorney to defend the insured. The insurer is, and appropriately so, in control of the claim. This control is part of the insurer's business and precisely the service which the insured bargained for when the policy of insurance was purchased.

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